An acquisition would put Liberty Global in a dead heat with
Comcast Corp. for the world’s largest cable company by video
subscribers, with about 22 million. A deal is expected to be
announced as soon as today, said two people familiar with the
talks, who asked not to be named because the discussions are
private.

The companies are in discussions “concerning a possible
transaction,” Virgin Media said in an earlier statement,
without providing details. Shares of Hook, England-based Virgin
Media jumped 18 percent in New York, the biggest one-day gain in
more than four years.

An acquisition would let Liberty Global add Virgin Media’s
almost 5 million cable customers and open a new battleground
with fellow billionaire Murdoch, whose News Corp. controls the
largest U.K. pay-TV provider, British Sky Broadcasting Group
Plc. Malone is using Liberty Global to grow in markets outside
the U.S. and already runs pay-TV providers in European countries
such as Germany, Belgium and Switzerland.

“This gives Liberty Global great European scale,” said
Andrew Hogley, an analyst at Espirito Santo Investment Bank in
London, who recommends buying Virgin Media shares. Being owned
by Liberty Global would give Virgin Media the chance to “push
more aggressively for market-share gain.”

CNBC’s David Faber said the deal had been approved by both
companies’ boards.

Debt Financing

The acquisition may be backed by about 11 billion pounds
($17 billion) of debt financing from banks led by Credit Suisse
Group AG, said one of the people familiar with the talks.

Virgin Media, whose shareholders include Richard Branson’s
Virgin Group, rose 17 percent to 2,889 pence in London. The
stock is up 89 percent over the past year. The U.S. shares
jumped to $45.61 at the close in New York. BSkyB lost less than
1 percent to 809 pence. Liberty Global, up 42 percent in the
past 12 months, fell 2.3 percent to $67.88.

An acquisition of Virgin Media would reignite the rivalry
between Malone and Murdoch, who were competitors and business
partners in the U.S. TV market. In Europe, the two men’s
companies vie for the title of the No. 1 pay-TV provider.

Liberty Global, based in Englewood, Colorado, distributes
TV, Internet and phone services to 19.6 million customers,
making it the second-largest cable company in the world, behind
Comcast. It has 18.4 million European subscribers, with Germany
and Belgium its biggest markets in the region.

Murdoch’s Empire

Murdoch owns shares in the Sky businesses across Europe,
including about 39 percent of BSkyB and more than half of
Germany’s Sky Deutschland AG. His companies have more than 19
million pay-TV customers in Europe.

The U.K. is Europe’s biggest pay-TV market by revenue,
ahead of France and Germany, according to IHS Screen Digest.
U.K. pay-TV providers are also benefiting from growth in Web
subscribers.

By acquiring Virgin Media, Liberty Global would boost its
growth and potentially save in equipment and programming costs,
according to Erhan Gurses and Paul Sweeney, media analysts at
Bloomberg Industries. Virgin Media had 4.9 million cable
customers at the end of September.

The British company has also been making its Internet
offering, advertised by runners Usain Bolt and Mo Farah, more
attractive by boosting speeds. The company is scheduled to
report fourth-quarter results tomorrow.

Higher Prices

BSkyB, with almost 11 million subscribers at the end of
2012, reported rising sales and earnings last week for the six
months ended Dec. 31, after raising prices and adding high-speed
Internet customers.

Virgin Media had a market value of $10.4 billion at
yesterday’s closing price, and an enterprise value of 12.3
billion pounds, based on data compiled by Bloomberg. BSkyB has a
market value of about $20 billion.

Liberty Global might need to finance an acquisition with
debt, potentially straining its credit ratings. The company is
rated Ba3, or three levels below investment grade, by Moody’s
Investors Service. Standard & Poor’s rates its B+, or four
levels below investment grade. The company has almost $37
billion in total debt, according to data compiled by Bloomberg.

Credit default swaps insuring bonds of Virgin Media against
default jumped 130 basis points, or more than 50 percent, to
379.6, data compiled by Bloomberg show. The level is the highest
since August.

Swaps pay the buyer face value in exchange for the
underlying securities or the cash equivalent should a borrower
fail to adhere to its debt agreements.

Liberty Global has been the most active acquirer of
television companies in the past 12 months, racking up eight
deals for about $1.1 billion and paying an average premium of 14
percent, according to data compiled by Bloomberg.

Acquirers have paid an average premium of 22 percent for
deals in the industry in the last 12 months, according to the
data. That would value Virgin Media at $43.94 a share, or about
$11.8 billion, using the stock’s average price over the past
three months before today.

Rich Valuation

Guy Peddy, a Macquarie Securities analyst in London, said
in a note today that 31 pounds a share would put Virgin Media’s
value in line with the most expensive cable peers in Europe.

Malone’s company has been working to expand in Europe,
acquiring German cable providers Kabel Baden-Wuerttemberg and
Unitymedia in the past three years.

Liberty’s bid for full ownership of Belgium’s Telenet Group
Holding NV fell through last month after investors rejected a 2
billion-euro ($2.7 billion) offer. Shareholders with 8.4 percent
of outstanding shares accepted the tender, which expired on Jan.
11, bringing Liberty’s stake in the cable operator to about 58
percent, the company said Jan. 14.

While Liberty has made the most acquisitions, Murdoch’s
News Corp. is following closely, with seven deals valued at
$1.33 billion, according to data compiled by Bloomberg.

News Corp.’s 7.8 billion-pound bid for the remaining stake
in BSkyB in 2010 was thwarted a year later when employees at
News Corp.’s U.K. print business were caught hacking into
subjects’ mobile phones for stories, making the acquisition
politically impossible. Murdoch plans to split his company into
publishing and entertainment groups by the middle of this year.

In 2008, Malone traded 16 percent of News Corp. for a 41
percent stake in pay-TV provider DirecTV, $625 million in cash
and three regional sports networks. The swap ended a standoff
that led Murdoch to install a takeover defense plan in 2004 to
stop Malone from boosting his stake in News Corp.